California's Proposed Billionaire Tax Fails at the Ballot

California voters have rejected Proposition 40, the state's proposed one-time tax on billionaires, the Associated Press reported Monday. The measure failed following an expensive campaign that pitted labor unions against some of tech's wealthiest figures. It was also opposed by Gov. Gavin Newsom.

A Nationwide Debate Over Wealth and Capital

Nic Carter lives about as far from Silicon Valley as you can get within the continental U.S., but his feelings about California's proposed tax on billionaires couldn't have been stronger.

Carter, a Floridian and a general partner at the crypto-focused venture capital firm Castle Island Ventures, told TechCrunch before the vote that he thought the proposal — which appeared on the ballot during California's midterm election last week — would actually have been a huge win for more fiscally conservative states like his own.

"I think it'd be great for Florida and Texas if these kinds of taxes pass," Carter said last week. "I think it's a shame, frankly, that California has this sort of semi-monopoly on capital formation, and that it's being squandered by local governance that's super dysfunctional."

What Proposition 40 Would Have Done

Proposition 40, otherwise known as the California "billionaire's tax," was a ballot measure proposing the creation of a special one-time 5% wealth tax levied against state residents with a net worth of more than $1 billion. The tax, which would have applied retroactively to anyone residing in California on January 1, 2026, would have funded a number of public programs — most notably Medi-Cal, the state's Medicaid program providing healthcare to qualifying low-income residents.

The Case for the Tax

Proponents of the proposal — largely labor unions — said it would have inconvenienced a tiny number of state residents, as California has a little over 200 billionaires who own a cumulative total of approximately $2 trillion in wealth. In return, they said, it would generate massive amounts of revenue. Its backers projected it could have raised as much as $100 billion over five years, which could then have been used to support public healthcare and education.

The Case Against: Capital Flight and Disincentive

Opponents argued that the tax would scare California's wealthiest residents out of the state and ultimately disincentivize growth. The capital flight argument — that California's upper crust would permanently flee, thus draining a more consistent source of revenue for the state — dominated online conversations among business leaders in the run-up to the vote. A critical but contested analysis published before the vote claimed the proposal would actually have lost the state money over time.

Carter, who subscribes to this argument, had called the tax a "sword of Damocles hanging" over the heads of founders. The threat, he said, wasn't just from this particular wealth tax but also from anticipated future taxes.

"You're signaling to the entrepreneur class that you consider them a resource to be plundered," he said.

Carter, who frequently works in San Francisco with tech startups, claimed such a tax would "inhibit venture capital investment" because VCs "wouldn't necessarily want to invest in a company if they knew the founder was going to have to liquidate a huge percentage of their shares." The logic: since many billionaires keep a majority of their wealth tied to their companies, it would be inconvenient for newly minted billionaires to liquidate a certain percentage of that wealth just to pay the tax.

via TechCrunch